The austerity policies of the past two years is threatening a double-dip recession.

It's time for some of those among us to come to two uncomfortable truths on this forum.

1. The Obama administration has overseen the sharpest decline in deficit spending just about every single one of us have seen in our lives, thanks in part to austerity demanded by Tea Party Republicans.

2. This radical reduction in the deficit is risking to stop our recovery growth dead in its tracks.

I've made this point over and over and over and over on this forum: deficit reduction retards growth.

So when you slash into the deficit as severely as we have, you will slow growth with the same severity. And what do you know? We ended up with negative growth in 2012's fourth quarter. Two quarters in a row, of course, is the legal definition of a recession (assuming the original assessment of 2012's 4th quarter holds where it is).

We've learned nothing from Europe, which has seen huge unemployment numbers, languishing recoveries, and double- and triple-dip recessions because they embraced austerity during a financial crisis while we embraced (albeit limited) stimulus.

In comes the Tea Party, and by the conclusion of the past Congressional cycle of radical austerity policy, we're now on the verge of a double-dip recession.

This is not random, folks. This is happening for that specific reason.

Here's a pretty important fact that virtually everyone in Washington seems oblivious to: The federal deficit has never fallen as fast as it's falling now without a coincident recession.

To be specific, CBO expects the deficit to shrink from 8.7% of GDP in fiscal 2011 to 5.3% in fiscal 2013 if the sequester takes effect and to 5.5% if it doesn't. Either way, the two-year deficit reduction — equal to 3.4% of the economy if automatic budget cuts are triggered and 3.2% if not — would stand far above any other fiscal tightening since World War II.

Until the aftermath of the Great Recession, there were only three such periods in which the deficit shrank by a cumulative 2% of GDP or more. The 1960-61 and 1969-70 episodes both helped bring about a recession.

Far steeper deficit cuts during the demobilization from World War II and in 1937-38 both precipitated economic reversals.

Now the deficit is shrinking about 50% faster than it did during the booming late 1990s, when the jobless rate was falling south of 5% and tax revenues were soaring — without tax hikes.

That's not to say that a recession is in the cards now, as the Federal Reserve applies its might to keep housing on a recovery path and helps propel the stock market higher. But growth is likely to be disappointingly weak yet again.

The Congressional Budget Office projects just 100,000 jobs will be added per month this year, the jobless rate will remain stuck around 8% and the economy will grow 1.4% if the sequester takes effect, but that may be too optimistic.

There was certainly no good economic reason for policymakers to risk the hit to growth that came with the roughly $200 billion fiscal cliff tax hike. Now they risk compounding the fiscal drag with poorly targeted budget cuts.

History suggests that there's little good to be gotten from cutting the deficit much faster than 1% of GDP per year. That's especially true at the moment, given the nature of our related demographic and budget challenges.

Both of those challenges suggest that growth should be our paramount concern, far ahead of near-term deficit reduction, even as we work to improve the intermediate-term budget outlook.

As far as the budget goes, it makes no sense that Congress remains focused on cutting discretionary spending. The danger clearly comes from entitlement programs, particularly health care, and the prospect that interest on the debt will spiral if we don't better align spending promises with revenues. These are programs that need to be reformed gradually and with great care, but there's no good reason to delay.

As for demographics, this was supposed to be the decade in which the leading edge of the Baby Boom generation began to ease out of the workforce and pass the baton to the next generations. Instead, there are not enough jobs to go around to allow for a seamless transition and Baby Boomers are hanging on longer as they try to recover from the financial damage inflicted by the housing bust.

There has been plenty of economic pain to go around, but younger workers have borne the brunt of three crises — jobs, housing and student loans. Since January 2000, the number of full-time jobs is up 10.5 million among workers 55 and up but down close to 8 million among the under-55 population.

In the speeches of Washington politicians, deficit reduction is all about being fair to the young and not leaving the next generation with ungainly debts. That might be true if deficit reduction came through smart changes to entitlement programs, but that's not the case.

In effect, the overly rapid fiscal retrenchment is giving younger workers a deal that none of them should want: We'll slash the deficit now, so that you will have a harder time getting good jobs and paying back your personal debts. We'll cut critical government spending on education, infrastructure and science so that new college graduates for whom job prospects remain discouraging can put their futures on hold for a little longer.

The deficit is fluid and goes up and down over the course of the year. The 2008 deficit was $460 billion. The deficit at the MOMENT Obama took office was projected as $1.1 trillion. He then proceeded to add over $300 billion to that amount. He then reduced that by $100-$200 billion each year.

I'm trying to see where this disagrees with anything I've said. Where's the lie?

Obama inherited a $1.3 trillion deficit, that, with stimulus policies, shot up to $1.5 trillion. (You say $1.1T and $1.4T respectively, but whatever. We're not far from each other).

He has managed to reduce it under $900 billion this year -- a speed of deficit reduction that has not been equaled in our or our parents' lifetimes.

Quote:

Originally Posted by AustinChief

The DEFICIT is not the debt... it can be eliminated INSTANTLY. You don't have to "work down" the deficit.

Uh, yeah sure. You can eliminate it instantly if you instantly slash a trillion dollars from the federal budget, which is what mlyonsd clearly prefers.

I'm trying to see where this disagrees with anything I've said. Where's the lie?

Obama inherited a $1.3 trillion deficit, that, with stimulus policies, shot up to $1.5 trillion. (You say $1.1T and $1.4T respectively, but whatever. We're not far from each other).

He has managed to reduce it under $900 billion this year -- a speed of deficit reduction that has not been equaled in our or our parents' lifetimes.

Ok, you have at least answered my question. You simply are this stupid.

You do realize that $1.1 trillion does NOT equal $1.4 trillion? You also realize that the current deficit is back to $1.1 trillion? A net cut of.... 0.

These numbers aren't up for debate. These are the official numbers. If I say pi (rounded) is 3.14 and you say 3.16 .. you are wrong. There is no "close enough."

And NO HE ****ING HASN'T REDUCED IT TO $900 billion. You don't get to count what he SAYS it will be this year until after it actually happens. THE CURRENT deficit is $1.1 trillion. Period. ZERO deficit reduction from what he "inherited."

You are also dead wrong on this supposed "speed of reduction." I'd accuse you of lying again... but it's clear you are just too ****ing stupid to understand these things.

HE GREW the deficit by $300 billion then the next year cut about $100 billion then the next year it stayed unchanged then the following year it went down $200 billion. When you look at those numbers as a percentage of the whole... they are NOTHING. Even if he manages to pull off the $900 billion deficit this year, he will have only reduced another $200 billion. IF he can drop $200 billion off the deficit every year from here on out... then you may have something. Until then you don;t get to crow about getting back to where you STARTED.

This argument is funny to me. It's like my wife telling me "if we stop buying clothes on a credit card, we're not going to have new clothes." Duh.

Austerity isn't about instant gratification. It's about paying down the bills. It's inane for me to read someone say "I've made this point over and over and over and over on this forum: deficit reduction retards growth." Hurrrr... How stupid.

The housing bubble popped and there are more bubbles just waiting to go. Deficit reduction works to keep the bubbles from completely blowing the whole thing up. We've got to pay today what they took out yesterday or we go over a real cliff, not a contrived one. That means we SUCK IT UP and do what's right now so the generations in the future can benefit. I'm not willing to torpedo the whole thing in the hopes that the leftists are right and we can spend our way to prosperity. We've already seen the results of that: reckless spending comes with costs.

Deficit reduction isn't the problem here. The deficit is. The economy, more than anything, is a psychological construct - not a scientific equation. It gets its power from the attitudes of those in it. Large deficits create large recessions.

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Ehyeh asher ehyeh.

"You and I are told we must choose between a left or right, but I suggest there is no such thing as a left or right. There is only an up or down. Up to man's age-old dream – the maximum of individual freedom consistent with order – or down to the ant heap of totalitarianism." -Ronald Reagan

It is pointless arguing with Keynesians. Despite the fact that Austrian economists continue to successfully predict economic crisis caused by Keynesians monetary policy, the Keynesians continue to cling to their flawed economic policies. Krugman advocated the very policies that caused the housing market collapse all the way until the market crashed. Austrian economists warned of the pending crash in hopes of preventing it.

No, plunging us into recession is not the only way to sell your preferred form of government.

You could try winning elections on the content of your ideas, for starters.

That's not remotely true, and I'd like to see what sources you have for that argument.

The GDP downturn last quarter was due to two things: Hurricane Sandy and dramatic cuts in defense.

That's why the economy crippled in the previous quarter. Do I even need to link to the CBO report?

If we practice austerity, the opposite happens.

Not what you just said. The opposite of what you just said..

It's worthless to argue with someone who has no understanding of Austrian vs Keynesian economics. Keep clinging to your stupid ideas, and continue to suffer boom/bust cycles, with the busts getting worse and worse.

Austerity isn't about instant gratification. It's about paying down the bills. It's inane for me to read someone say "I've made this point over and over and over and over on this forum: deficit reduction retards growth." Hurrrr... How stupid.

Ask England how that austerity changey thing is working out for them?

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Fear is the path to the Dark Side. Fear leads to anger, anger leads to hate, hate leads to suffering.